What is Law & Economics?
“Law and economics” is the economic analysis of the law. As Kaplow and Shavell state: [1]
Economic analysis of law seeks to answer two basic questions about legal rules. Namely, what are the effects of legal rules on the behaviour of relevant actors? And are these effects of legal rules socially desirable?
The field of economic analysis of law may be said to have begun with Bentham in the 18th and 19th centuries. However, it really developed as a discipline in the 1960s and 1970s, with key contributors being Coase, Becker, Calabresi and Posner.
The most obvious application of economics to law is in relation to competition law. However, the field is much wider. All government policy is rooted in laws so law and economics encompasses the economic analysis of regulation and public policy more generally. Topics include the behaviour of regulated firms, the political economy of legislation and legislative processes, law and finance, corporate finance and governance and industrial organisation, corporate law, liability for accidents, property law, contracts and litigation.
In the United States, most judges recognise that the importance of economic analysis for solving policy issues and analysing possible motives for business behaviour. The field of law and economics has become so important in the United States that many of the top law schools have PhD economists on their staff.
See the next tab, Law & Economics Literature for links to seminal papers from the field of law and economics.
[1] Kaplow, Louis and Steven Shavell (1999) “Economic Analysis of Law”, NBER Working Paper 6960
Law & Economics Literature
Looking for a quick overview?
A useful summary of Law and Economics by Paul Rubin can be found in an entry in the Concise Encyclopaedia of Economics accessible online at EconLib. In a few pages the summary describes law and economics and its application to property, contract law, tort law, and criminal law. https://www.econlib.org/library/Enc/LawandEconomics.html
Foundations – the articles that launched a field of enquiry
- Calabresi, Guido, & Douglas A. Melamed (1972). “Property Rules, Liability Rules, and Inalienability: One View of the Cathedral”, 85 Harvard Law Review 1089
- Becker, Gary (1968). “Crime and Punishment: An Economic Approach.” Journal of Political Economy 76, no. 2: 169–217.
- Becker, Gary (1981). “Treatise on the Family”. Chicago: University of Chicago Press.
- Coase , Ronald (1960). “The Problem of Social Cost”. Journal of Law & Economics, 3 (1): 1–44. doi:10.1086/466560
- Coase, Ronald (1937). “The Nature of the Firm”. Economica 4 (16): 386–405. doi: 10.1111/j.1468-0335.1937.tb00002.x
- Demsetz, H. (1967). “Towards a Theory of Property Rights”. American Economic Review 57(2) 347-59.
- Grossman, Sanford and Hart, Oliver (1986) “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration” Journal of Political Economy 94(4):691-719
- Hart, Oliver (2017). “Incomplete Contracts and Control”. American Economic Review 107(7): 1731-1752
- Hayek, Friedrich A. (1945). “The Use of Knowledge in Society”. American Economic Review 35(4), 519-530.
- North, Douglass (1991). Institutions, Institutional Change and Economic Performance, Cambridge University Press.
- Ostrom, Elinor (1990). Governing the Commons: The evolution of institutions for collective action. Cambridge University Press.
- Stigler, George J. (1975). The Citizen and the State: Essays on Regulation. Chicago, University of Chicago Press, 209
- Stigler, George J. (1961). “The Economics of Information,” Journal of Political Economy, 69(3), pp. 213–25
- Simon, Herbert. (1951). Administrative behaviour: a story of decision processes in business organization. London: Macmillan.
- Williamson, Oliver E. (1975). Markets and Hierarchies. The Free Press: New York.
- Williamson, Oliver E. (1985). The Economic Institutions of Capitalism. The Free Press: New York.
Textbooks and other general literature
- Bouckaert, Boudewijn and De Geest, Gerrit (eds.), Encyclopaedia of Law and Economics, https://reference.findlaw.com/lawandeconomics/contents.html
- Baldwin, Robert, Martin Cave and Martin Lodge (2010). The Oxford Handbook of Regulation., Oxford University Press.
- Cooter, Robert and Thomas Ulen (2016). Law and Economics, 6th edition. Berkeley Law Books. Book 2. http://scholarship.law.berkeley.edu/books/2
- Epstein, Richard A. (1995). Simple Rules for a Complex World. Harvard University Press: https://www.hup.harvard.edu/catalog.php?isbn=9780674808218
- Epstein, Richard A. (1997). “Law and Economics: Its Glorious Past and Cloudy Future,” 64 University of Chicago Law Review 1167 https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=2306&context=journal_articles
- Friedman, David D. (2000) Law’s Order: What Economics Has to Do with Law and Why It Matters. Princeton: Princeton University Press.
- Posner, Richard A. (2009) Economic analysis of law, 9th edition. New York: Wolters Kluwer Law & Business. https://www.amazon.com/Economic-Analysis-Ninth-Aspen-Casebook/dp/1454833882
- Rubin, Paul H. “Law and Economics” in the Library of Economics and Liberty https://www.econlib.org/library/Enc/LawandEconomics.html
- Tadelis, Steven, & Oliver Williamson (2012). Transaction Cost Economics: https://ssrn.com/abstract=2020176 or http://dx.doi.org/10.2139/ssrn.2020176.
- Winter, Harold (2013). Trade-Offs: An Introduction to Economic Reasoning and Social Issues (2nd Ed.) Chicago: The University of Chicago Press.
- Viscusi, W. Kip, Joseph Harrington Jr. and David Sappington (2018). Economics of Regulation and Antitrust, 5th edition. MIT Press.
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Useful Links
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